“The best way to get started is to quit talking and begin doing.” – Walt Disney.
EU CLOs: Investment Performance and Sectors Most Affected by COVID-19
| EU CLO 2018 | Alpha (Total annualised) | Exposure to Sectors Most Affected by Covid (Nov/Dec 2020) | Exposure to Sectors Most Affected by Covid (Jan/Feb 2020) |
| Tier 1 | 0.8% | 18.9% | 19.8% |
| Tier 2 | 0.4% | 16.2% | 17.2% |
| Tier 3 | 0.2% | 16.1% | 16.0% |
| Tier 4 | 0.0% | 17.4% | 17.7% |
| Tier 5 | -0.2% | 19.1% | 19.8% |
| Tier 6 | -0.4% | 18.7% | 20.0% |
| Tier 7 | -0.9% | 19.6% | 20.8% |
| Average | 0.0% | 18.0% | 18.7% |
- The average 2018 EU CLO deal was tracking the S&P Euro Leveraged Loan Index return.
- There are 70 deals in the sample size. Deals are ranked by their investment alpha and grouped into 7 tiers with 10 deals in each tier.
- Sectors (Moody’s classification) most affected by Covid in this study are:
- Hotel, Gaming & Leisure
- Transportation: Consumer
- Media: Advertising, Printing & Publishing
- Transportation: Consumer
- Automotive
- Retail
- It is interesting to note that, on average, deals in tier 1, 5, 6 and 7 had a higher than average exposure to sectors most affected by COVID-19 in Jan/Feb 2020 and Nov/Dec 2020.
- Managers in tier 1 did well through times of volatility by delivering good investment alpha, building par and reducing their exposure, on average, to sectors most affected by COVID-19. Perhaps it also highlights the importance of manager selection and the fact that there are always bright spots even in troubled sectors?
- On the other hand, managers in tier 5, 6 and 7 underperformed the loan index despite trimming their exposure to sectors most affected by COVID-19.
- The range of investment alpha was huge at 2.8%! The top deal saw 1.1% alpha while the worse registered a -1.7% alpha – manager selection is important!
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The information, research, data, research related opinions, observations and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers; authorised personnel or their directors make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness or correctness of such sources and the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research related opinions, observations, and estimates in this document are in draft form as at the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historical or current position or performance of any of the deals or issues mentioned in it.
